I received this urgent email from filmmaker Justin Eugene Evans. Printed with his permission.
To All -
Zak Forsman alerted me to a dangerous bill that will dramatically effect entrepreneurship in America. USAToday discussed it, but never named the actual bill.
Here’s the full bill:
It was a bitch to find. I had to do about 4 hours of research…no article would cite the actual name of the bill! I read through at least three other financial-related bills before finding the right one.
This bill is not yet in Thomas (the website that tracks bills).
And, it currently has 114 pages of amendments:
http://banking.senate.gov/public/_files/032310MangersAmendmentAYO10627.pdf
Here is a blog that discusses this:
What’s frustrating about this bill is that it goes way beyond fixing Wall Street and crooked banks. If passed it could dramatically alter how we raise money for PPM’s. It will eliminate a huge pool of investors. It will force SEC registration and reporting upon small, private enterprises.
So, we need to call our Senators and explain how this will hurt our business.
S. 3217 is Senator Dodd’s attempt to fix America’s financial system. Unfortunately, he doesn’t stop at Wall Street and big banks. His bill would completely alter how small businesses raise money in America. Buried deep within the bill are provisions to raise the Accredited Investor qualification, eliminate real estate from an investor’s total assets in order to qualify, force small businesses to register with the SEC regardless of size, force bi-annual reporting and eliminate the intra-state exemptions.
Here is Open Congress’ link to the bill:
http://www.opencongress.org/bill/111-s3217/show
The result is simple but profound. According to Scott Shane of Business Week 77% of current accredited investors would no longer qualify.
http://www.businessweek.com/smallbiz/content/mar2010/sb20100318_367600.htm
Chris Dodd’s camp sees this as a mere adjustment for inflation. That might be true, but some of the fundamentals of businesses, particularly our own, have changed. We don’t need as much start-up capital as we did 20 years ago. Technology has made our industry far more efficient. This would force us to work with a level of investor who expects a far higher ROI. It would force us to compete for investment dollars with bigger corporations. It would force first time entrepreneurs to raise too much capital for start-ups, which contradicts the efficiencies we’ve gained in the last twenty years.
Tweet about this. Put it on your facebook page. Call your senator. This is too important to our industry. And, this isn’t just about making films…
…imagine you’ve always wanted to own your own restaurant. You need $350,000.00 to finance it. You don’t think it will make a profit for the first year. After that, you predict it will make a 20-30% ROI and your investors will begin exiting in Year Three. That’s possible under the current law. It would be far more difficult if Chris Dodd’s bill passes…you’d be forced to go to investors who expect a much higher ROI, who expect a faster exit and who earn such huge sums of money in a year that the ROI would represent a smaller portion of their income.
$100,000.00 in profit to someone worth 1 million is fantastic. To someone worth 10 million, it’s a pittance. The wealthy expect their portfolios to grow based on percentages. What’s one person’s 10% ROI is another (wealthier) person’s 1%. Who wants 1% growth on a high risk venture? No one! They’d be smarter putting it in T-Bills.
Chris Dodd’s intent might be good, but the execution is clumsy. We need to reform how major corporations do business in America without killing entrepreneurship in the process.
I’ve begun working with high-networth investors. These changes may not affect Humble Magi at all. But, if you’re thinking of making your first feature film with a budget of 500 grand or less then these changes most definitely affect you. If you’ve ever dreamed of starting your own small business then these new rules will affect you. If you’d prefer to work with smaller sums of money and grow a business carefully with patient investors, these new rules will affect you.
We’re already fighting a battle with six corporations who now control 90% of our nation’s media. This will prevent thousands of us from ever stepping onto the field of battle. Or, worse yet, it will criminalize small-time entrepreneurship. Chris Dodd, I’m a fellow Democrat. I want you to reform Wall Street. I want you to reform lending institutions. I want you to fix the Real Estate business. But, don’t fix a system that isn’t broke. Small business owners didn’t cause the 2008 Great Recession. Big businesses did. By burying Reg D and SEC reforms deep inside S.3217 you’ve proven two things to me. You don’t have my best interests in mind…and you hid it deep inside a bill because you know it’s wrong.
And here is Justin’s letter to his Senator. Consider it a template to write your own Senator(s) today.
Dear Senator Bingaman -
My name is Justin Eugene Evans. I’m the founder and CEO of Humble Magi, an independent film production company in Albuquerque. We’ve recently completed our first feature film. It’s won four awards and been accepted into ten festivals. More importantly, it’s doing well at Cannes and my investors will make a profit within 12 months.
If you vote yes on S.3217 you’ll destroy the business I’ve been building. Let me explain why:
1.) EFFICIENCIES OF MODERN FILMMAKING
A technological revolution is still occurring in the film industry. For the last 20 years it has slowly transformed production. Now, it is transforming distribution. At long last, I can raise a modest amount of money on my own and distribute a motion picture across the United States. These efficiencies have dramatically reduced my needs for capital. I completed my first film with only $200,000.00. We’re distributing it by raising $500,000.00. The ROI for my investors is in the 20-30% range. What would have cost me several million dollars in the 1990′s now only costs a fraction of that. As with all American industries, we’re becoming more efficient.2.) BIG INVESTORS DON’T CARE ABOUT SMALL RETURNS
However, I need access to small investors in order to make a small budget motion picture. A healthy return is largely a matter of the investor’s perspective. If I can deliver $100,000.00 in profit to an investor worth 1 million dollars that investor will be quite pleased. Someone worth ten million would consider such a small return a waste of their time. One investor’s 10% is another’s 1%…3.) CHRIS DODD’S INFLATIONARY ADJUSTMENT IGNORES THE DISRUPTIVE POWER OF MODERN TECHNOLOGY
…and that means Chris Dodd’s inflationary adjustment, which seems harmless, has the potential to eliminate the very investors I need to make motion pictures. It’s already a tremendously unfair battle that I wage on a daily basis. Six corporations control 90% of our nation’s media. I’ll fight that fight. That’s how much I love my job. But, please don’t think it’s a fun fight, a fair fight, a truly American fight. I fight this battle with multi-national corporations because my government fails to enforce the anti-trust laws that should have broken up The Six Studios twenty years ago. I don’t have a choice.4.) ADDITIONAL REPORTING AND COMPLIANCE REGULATIONS MEANS ADDITIONAL LEGAL FEES
My budget is strained as it is. The legal fees on properly setting up a feature film are at least $5,000.00. That’s roughly 2.5% of my budget. For my big-budget competitors, who spend less than 1% of their budget on legal fees, an increase will be unwanted but unremarkable. For me, it’s a killer. You’re making me reduce my crew size, my shoot days, my marketing budget. In short, I have to choose between proper legal representation and the craftsmanship of my film.The only weapon I have is making micro-budget feature films that look, sound and feel like bigger budget studio movies. The capital I need to do this comes from a very specific type of investor…the angels Chris Dodd wishes to eliminate from the accredited investor pool. If 77% less Angels are allowed to invest, if I’m required to spend even more of my budget on legal fees to ensure we comply with multiple state regulations rather than one unifying set of laws, if the database my broker-dealer is whittled down…you’ve killed my business.
IN SUMMARY:
I’m trying to do what Walt Disney did during the last Great Depression. I’m building a small business with big ambitions. We know what the public wants and needs to see in a theater. We’re very good at our job. We’re not big enough yet to go after institutional capital. We need access to the very capital this bill will eliminate.Don’t kill my company, Senator.
We all know Wall Street needs reforms. We know the banks must be reregulated. But, changing Reg D will destroy my small business. I’m a Democrat. I’ve read the bill. I understand that it was well-intentioned. But, Chris Dodd’s wrong. He’s flat-out wrong about how entrepreneurs build companies in America. He doesn’t understand how technology has reduced the needs for hundreds of industries, how we’re more efficient than we were 20 years ago, how we’re capable of making a new industrial revolution with desktop computers, 3D printers, high-speed internet connections and digital cameras. Don’t make me compete with bigger businesses who need more capital because they’re at a later stage of development. Don’t make me compromise quality for short-term profits because higher-end investors demand greater returns and faster exits. Do the American thing. Enable me to build a company for the 21st Century. I’ll do the hard work. I promise. I’ll treat my staff fairly, I’ll get up early, I’ll stay late and I’ll spend my investor’s money wisely. Meet me half way and tell your fellow Senators to vote no on S.3217 or remove the Reg D changes. If you do that I’ll build a company for the ages.
PS – Can you please get Section 181 reauthorized? HR 4213 just needs a nudge. It would help reduce my investor’s risk. Much obliged.